Anti-Deficit Poster Boy: We Need More Inflation

Kenneth Rogoff hasn't had an easy couple of months. Back in April, his seminal and much-cited 2010 paper cowritten with Carmen Reinhart on the impact of government debt on economic growth was found to have a couple of significant errors. Since then, he's been in an increasingly personal war with the New York Times'sPaul Krugman. But a new op-ed by Rogoff brushes aside Excel and the feud with some common ground: The idea that the global economy could use some inflation.

Right now, the Federal Reserve's inflation target rests at 2 percent. The Fed's quantitative easing bond-buying program has led some people to fear that dangerously high inflation could be just around the corner. The chief economist at the Bank of England issued a similar warning for the U.K. last month.

The numbers, however, paint a different inflationary picture in the U.S. According to the Personal Consumption Expenditures price index, the preferred gauge of the Federal Reserve, inflation in the U.S. is now at a three-and-a-half-year low at just 1 percent. Ken Rogoff is sounding the alarm:

Right now is the U.S.'s best chance yet for a real, sustained recovery from the financial crisis. And it would be a catastrophe if the recovery were derailed by excessive devotion to anti-inflation shibboleths, much as some central banks were excessively devoted to the gold standard during the 1920's and 1930's.

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This isn't the first time Rogoff has come out in favor of pumping up prices, and possibly looking to move the Fed's inflation target into the 4 percent range. And he's certainly not alone. As Krugman wrote last month, there are several other high-profile economists who have also viewed increased inflation as a good idea.

In Rogoff, even after the "uncivil" attacks, Krugman's recent rallying cry of "What do we want? Four percent! When do we want it? Now!" seems to have gained a strange bedfellow.